The tax-free amount is nothing more than the income limit (achieved on an annual basis), which exempts us from having to pay income tax. Only when it is exceeded does this obligation arise.
The assumption of such a solution is to protect people with the lowest earnings; because it eliminates the tax burden that could further worsen their economic situation. Of course, this amount varies from country to country. We also have it in Poland, but objectively speaking, there is nothing to be happy about, let alone praise …
Tax-free amount in Poland
The tax-free amount that has been in force in Poland since 2009 is only … PLN 3091! Therefore, in order to be able to enjoy the fact that there is no need to pay income tax, you should earn PLN 257 60 groszy per month, while the so-called the subsistence minimum, i.e. the amount of financial resources that allow only the maintenance of human vital functions and his psychophysical fitness (in other words: thanks to the subsistence minimum, a person will not starve), was calculated in Poland at PLN 544 per single person (i.e. almost twice as much as is tax-free!), and PLN 440 per capita for a family of three!
Let us repeat it again: in order to be exempt from income tax in Poland, you must have an income almost twice as low as the amount enabling your physical survival! It is downright mockery and absurd that is hard to even comment on.
For comparison, at the moment even such exotic countries as Botswana or Namibia (converted into PLN 12,900 and 12,100 respectively) and even Tanzania (3.960) have higher tax-free amounts.
No wonder that the promise to increase the tax-free amount became one of the elements of the recent election campaign.
How was it supposed to be?
Already during the aforementioned pre-election campaign, Law and Justice promised that in the event of a victory, which, as we know, was won, it would increase the tax-free amount to PLN 8,000 (supposedly a little better, but still in terms of monthly earnings – PLN 666 70 gr – it is nothing impressive; not much more than the subsistence minimum) and in the first hundred days of the functioning of the new government.
How is it?
So far, we are still “happy” with the amount of PLN 3091.
How likely will it be
“Good-luck promises and joy to the stupid”, one could say when commenting on the policy of the rulers related to increasing the amount in question. First of all: one hundred days can be forgotten – long gone. Secondly: PLN 8,000 is a thing of the past – it will be less. Third: not for everyone anyway. According to recent announcements by Deputy Prime Minister Mateusz Morawiecki, the increase in the tax-free amount will only apply to the poorest. More precisely, it is to amount to PLN 6,600 – Let us note that this amount of income is to guarantee the exemption from the obligation to pay income tax for people who reach the already mentioned minimum subsistence level! For people earning more, i.e. in the range of PLN 6,600 – 11,000 (Note! The upper limit is not yet certain), the tax-free amount will be higher than the current one, but it will also be regressive (the more someone earns, the lower the tax-exempt amount will apply), with the specific rates not yet known. On the other hand, a person whose earnings will be in the range of PLN 11,000 – PLN 85,000, will pay the income tax, as the amount of the exempt amount will be PLN 3.091. Now pay attention! For an annual income of over PLN 127,000, there will be no exempt amount.
See also: Do you get PLN 4,000 or more on hand? Better start a LTD company in England or Ireland
To sum up, the issue of the tax-free amount will still be a ball for Polish entrepreneurs. Instead of a quick and significant raise, a late, largely unfulfilled promise, which instead of improving the living conditions of Polish entrepreneurs and employees, dropped the proverbial “scrap” of only some of them. And it is not even known yet what this “scrap” will ultimately look like …
UK Tax Free
In the previous part of the article, the amounts of tax-free amounts in countries quite distant from Poland and, as mentioned, are exotic. Now let’s focus on a reality that is closer to us, citing facts about the quota in question in Great Britain, a country that many of our countrymen chose as a place to earn. If someone decided to run a business in England, Wales or Scotland (registered a company or simply decided that it was enough to move the business to the UK), now he can look at the Polish tax reality … with pity. Not only is the tax-free amount in Great Britain incomparably higher, it is also growing regularly! Currently, it is 11,000 GBP, which in our currency is (depending on the pound rate) about 60,000 PLN. And from April 2017 it is set to go up to £ 11,500! It is therefore difficult to find any comparison between Polish and British conditions. One can only advise you to decide as soon as possible to set up a business in England or another country within the UK, and then, as the owner of the LTD company, earn money for yourself, not for the tax …
Advantages of a high tax free amount
The British authorities have long realized that the best impulse for the economy is to leave as much money as possible in the citizen’s wallet. Hence the very high tax-free amount. Thanks to it, even if a specific amount in the form of direct tax (income tax) is not paid to the budget, it will be credited with indirect taxes (VAT, excise duty), by buying or renting more goods and services, while increasing the earnings of these entities, from whom we buy / rent certain goods. In addition, as already mentioned, the high tax-free amount gives the impression that you earn primarily for yourself, and not for the state budget, which undoubtedly strengthens the motivation to work (in addition, the authorities that care for first for the interest of the taxpayer, and then his own).
See also: Tax Return Self-Assessment in the UK – who must submit a tax return and by when?
Moreover, having a single tax-free amount for all actors, especially if it remains high, seems to be a much fairer and “humane” solution than if broken down into thresholds. Why? Well, the possibility of using such a benefit does not condemn citizens with lower incomes (in Poland, tax exemption clearly places the taxpayer among the extremely poor). In addition, the authorities show in this way that they treat all citizens equally, not granting special privileges to some social groups at the expense of others. We should also note that such a high amount, as we are dealing with in the UK, means that both people paying there income tax, and those who are exempt from it, achieve an income that enables them to live in dignity. So it is not that the tax-free amount is a donation by the state that is thrown to the poorest only so as not to lead them to the path of … begging.
Solution to the problem
There is probably only one. Choosing a jurisdiction that offers better and more stable working conditions. So, setting up a company in Great Britain is a sure way to ensure greater profits from the same work that we would have to do in Poland. Such a company may take various forms; e.g. self-employment, LTD company operating both in England, Scotland and Wales, or any other allowed by stable and friendly British law.